Leave a Legacy

Kevin Spafford is Farm Journal’s succession planning expert for the Farm Journal Legacy Project.He hosts the nationally-televised ‘Leave a Legacy’ TV, facilitates an ongoing series of workshops for farm families across the U.S., and is the author of Legacy by Design: Succession Planning for Agribusiness Owners.

Using Life Insurance to Create an Asset for Inactive Children

Jake owns a successful agribusiness. His son Chad has been involved in the operation since college. The operation is worth $4 million, and it represents significantly all of Jake’s assets. His other son, Clayton, is not involved in the operation.

To make an equitable distribution to both his children, Jake purchases a $2 million life insurance policy and names Clayton as beneficiary. Though this is not an equal distribution, Jake rationalizes that a $4 million operation, like any business, is risky. It is fraught with opportunities and obligations, duties and responsibilities.

Would you make a similar insurance purchase? Check out our Life Insurance Needs Analysisto help you plan for the contingencies that may affect the financial health of your business.

News & Resources for YouJob Description Template: Fit the best candidate to each operational role and ensure that everyone involved is clear about responsibilities and expectations.

Weigh in about succession planning. Check out the Legacy Pollon the Legacy Project home page (upper right).

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Anonymous3/29/2011 04:08 PM

No, I would never do this to my son. I love my children equally. The "on farm" son should have been paid a fair wage for his employment over the years and should have been able to buy into the business with his savings as he could afford to.
The "off farm" son shouldn't be penalized just because he worked off farm. My experience after 20 years as a spectator of this type of thing is that the "on farm" kid(s) think its all theirs! They think they "earned it". Guess what - they didn't. They were merely the operators of multigenerational assets that belong to the entire family. Farmland is "earned" via the return on equity that was built up over many generations. I intend to leave my farm operation to my kids equally. I love them all the same and I am not arrogant enough to think I earned it all. Most of what I "earned" has been because I had the opportunity in the first place and inherited enough land to stay in farming. If structured properly off farm kids can provide skills, insight and capital to the farm operation as investors.
In the situation you quoted I hardly believe that "on farm" son earned $2M after tax from his wages (i.e. the implied amount of equity that he would inherit in excess of his "off farm" brother). Moreover, farmland is a valuable appreciating asset that is hard to recreate and obtain. To give it all to the "on farm" son is preferential from that perspective also (i.e. its a better asset). Clearly preference was given to the "on farm" son, but that is the same story I have seen around here for my entire life and the #1 reason that farm families and operations disintegrate. Poor planning / inequitable treatment by the family patriarch leads to many dysfunctional results.